OPEC cuts demand forecast; API posts huge drop in distillate supply

SAN FRANCISCO (MarketWatch) — Oil futures closed with a 1.2% loss on Wednesday, pressured by a weaker oil-demand forecast ahead of U.S. government data on petroleum supplies that are expected to show an increase for last week.

Oil prices gave back part of the more than 3% gain they saw on Tuesday, though they continued to find some support from supply concerns fueled by continuing Middle East tensions. Follow this writer on Twitter.

Separately, the U.S. Energy Information Administration said Wednesday that households will spend more for heating oil and natural gas this winter than last. Read: Turning down the heating bill.

“Oil slid based on indications U.S. inventories are increasing for the first time in weeks,” said Seth Rabinowitz, who covers commodities as a partner at Silicon Associates. EIA data show that crude supplies fell two weeks in a row, during the weeks ended Sept. 21 and Sept. 28.

Crude for November delivery
US:CLX2
fell $1.14, or 1.2%, to settle at $91.25 a barrel on the New York Mercantile Exchange. The contract tapped a high of $93.66 a barrel, on the heels of crude futures rallying 3.4% Tuesday to reach their best settlement level in more than a week.

Late Wednesday, after the regular oil trading session closed, the American Petroleum Institute reported that crude-oil supplies rose 1.65 million barrels for the week ended Oct. 5.

Distillate stocks, however, dropped by 6.2 million barrels, while gasoline inventories climbed by 2.5 million barrels last week, the trade group said.

The API data come ahead of the more closely-watched U.S. EIA report which was delayed to Thursday at 11 a.m. Eastern because of Monday’s holiday.

Analysts polled by Platts expect a 1.5 million-barrel increase in crude-oil supplies for last week. They also forecast a decline of 400,000 barrels for distillate inventories and no change in gasoline supplies.

Iran raises rhetoric on Israel

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Iran accused Israel of launching cyber attacks on its oil facilities and derided the Jewish state's air defenses, although it didn't take responsibility for a drone that entered the Jewish state's airspace Saturday before Israel shot it down.

Early Wednesday, the Organization of the Petroleum Exporting Countries lowered its forecast for global oil demand in 2012, forecasting that demand will grow by 800,000 barrels a day in 2012, down 100,000 barrels from its previous forecast. See: OPEC lowers 2012 world oil demand forecast

On a technical level, the $93 level ranks as “our key pivot for this market,” said Anthony Lazzara, chief executive of Lido Isle Advisors, a commodities investment firm in Newport Beach, Calif. “We call this level the decision level.”

If oil can hold above $93, Lazzara expects the bullish trend to resume, but if crude holds below $93, “we look for the bears to take control again and bring this market lower to $88 and possibly $82.”

For now, Middle East tensions seem to have a hold over the market, thus putting in a potential floor at $88, he said in an emailed note.

Also Wednesday, November Brent crude
LCOX2, -0.55%
climbed as high as $115.59 a barrel. Prices then closed at $114.33, down 17 cents from Tuesday’s settlement.

Turkey’s top military commander has warned Syria that it will respond “more strongly” if Syria continues its cross-border shelling, according to a BBC News report Wednesday.

Analysts at Commerzbank said fears that the Syrian conflict will spill into Turkey and news of early elections called in Israel had been driving the gains for Brent.

“The nuclear dispute with Iran is likely to be the dominant issue in the forthcoming electoral campaign,” the analysts wrote in a note. “[Benjamin] Netanyahu, Israel’s current prime minister, has in recent months often called for a military strike against Iran’s nuclear facilities.”

Israel’s general election could come as soon as January, nine months ahead of schedule, according to media reports.

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